Economists focus on static RBA, benign CPI
Economists this week looked for new ways to describe a central bank that's not doing anything and inflation figures suggesting it will continue not doing anything for a while yet.
In the minutes of its policy meeting earlier this month, the RBA on Tuesday flagged a continuation of the "period of stability" for interest rates that began with a cut in August last year.
Then on Wednesday, the Australian Bureau of Statistics released September quarter inflation figures, which showed the annual inflation rate dropping to 2.3 per cent from 3.0 per cent.
For Hans Kunnen and Janu Chan at St George Bank, the RBA's position was "steady as she goes and avoid the rocks".
For Citi's Paul Brennan and Josh Williamson, there was no change to the policy outlook, with the RBA just "going through the motions".
ANZ's Felicity Emmett said the RBA remains "remains comfortably on hold" with "very little new" in the minutes.
Su-Lin Ong at Royal bank of Canada said the minutes "contained little new news with a 'steady as she goes' message permeating throughout the minutes".
Stephen Walters at JP Morgan said the RBA stuck to "the prevailing narrative" that the current policy setting is appropriate".
For RBA-watchers, the key question is whether the drop in inflation would make any difference to the outlook for inflation that underpinned the central bank's policy.
Commonwealth Bank's John Peters, Michael Blythe and Diana Mousina, thought it wouldn't.
"Today's outcome will reinforce the RBA preference for a period of ongoing stability in interest rates," the said.
That view was shared by NAB's Spiros Papadopoulos.
"Today's CPI is unlikely to lead to any major changes to the RBA's CPI forecasts in the November Monetary Policy Statement," he said.
One influence on the fall in the inflation rate was the removal of the carbon tax in mid-July, backdated to July 1.
If not for just the drop in electricity prices, inflation would have come in at 2.5 per cent, but there were most likely some other effects.
Westpac's Justin Smirk estimated the effect on the CPI was 0.3 percentage points, implying inflation would have been 2.6 per cent aside from the repeal.
ANZ economists Riki Polygenis and Savita Singh also noted a smaller rise in gas prices than in the same quarter last year.
It's simple to work out that excluding gas and electricity from the CPI the annual rise would be 2.5 per cent, rather than the 2.3 per cent reported by the ABS.
But the tax change is a one-off and inflation is still on-target notwithstanding the repeal.
"Aside from the carbon tax impact, the outlook for inflation is not greatly changed," HSBC economists Paul Bloxham and Daniel Smith said.
"With the economy's rebalancing act progressing slowly, domestic wage growth having slowed, oil prices falling and global inflation subdued, the risk would seem to be that inflation remains well contained from here."
Even so, they said, the lower Australian dollar (via higher import prices) and government moves to increase user charges for services would have an offsetting inflationary impact."
